CProgress is being made on a new stimulus bill to include funding for another round of wage protection scheme (PPP) targeting specific businesses that have seen a decline in revenue. That’s good news. But one big thing may be missing from this new law: a certain tax deduction, if not allowed, would be too expensive for any small business to receive a forgivable PPP loan this year.
If you have a PPP loan for your business this year, you may face a big tax bill because of it. No, it is not in the amount forgiven. It is not taxable. But until now you can not deduct any of the costs of applying for an apology. That is an issue. I explain.
As many panicked earlier this year – let’s just say you got a PPP loan. However, you were able to get your way through the epidemic. If so, you are not alone. Many small businesses received their loans because not only were they allowed to do so at the time but the future was not very clear. These funds were a great help in getting employees to work, especially when the economy was stagnant. But then the economy rebounded, many businesses were not hit as frighteningly and profits remained the same as last year, perhaps a little lower or a little higher.
If this sounds like your business, you may have a tax problem. You may have paid estimated taxes this year based on last year’s income. If this year’s income is the same, you’re going to incur huge expenses that you could not spend because you used them for PPP forgiveness – or plan to use them. That means your taxable income will be much higher this year. This means you will have to pay more taxes than you paid. The IRS is fully aware of this problem Recently released “Guidance” that makes it clear that these costs cannot be deducted.
Accountants and some legislators are not happy about that.
“PPP recipients – especially small businesses – should not be surprised to see a tax bill on their PPP debt expenditure next year. In a statement. “Members of Congress must act now and pass this law to ensure that struggling businesses and their owners can recover.”
The good news is, Congress may be asking. “Unfortunately, the Treasury has doubled its position under the new guidelines, increasing the tax burden on small businesses. Wrote in a letter To Treasury Secretary Steve Munuchin.
A 8 908bn trigger scheme It was agreed by lawmakers from both parties this week that there is a rule to allow these costs to be deducted. However, a The opposite plan Mitch McConnell, the Senate majority leader, did not. A final bill will certainly still have a long way to go – and will have many changes in it – assuming that it will always happen before it becomes law. If no agreement is reached, that tax rule will remain in effect.
Call me an innocent believer, but I hope this issue will be resolved by Congress and the exemption of these costs will be allowed. But that’s my guess. In the meantime, small business owners simply have to wait. Most accountants I know are already telling their clients to extend 2020 tax returns until next fall. Additional laws will inevitably be passed, and when it is – or should not be – solved this costly problem. Hope it does.